March 11, 2021

Entity Rationalization

Entity Rationalization

Entity Rationalization: What Can or Should Be Done About the Proliferation of Business Organizations? Part II—Introduction
By Richard A. Booth, 58(4): 1385–86 (Aug. 2003)

Organizational Choices of Professional Service Firms: An Empirical Study
By Robert W. Hillman
, 58(4): 1387–1411 (Aug. 2003)

The Place (If Any) of the Professional Structure in Entity Rationalization
By Thomas E. Rutledge, 58(4): 1413–31 (Aug. 2003)

Form and Function in Business Organizations
By Richard A. Booth, 58(4): 1433–48 (Aug. 2003)

Entity Rationalization: What Can or Should Be Done About the Proliferation of Business Organizations?
      Richard A. Booth, 58(3): 1003–4 (May 2003)

Rationalizing Entity Laws
      William H. Clark, Jr., 58(3): 1005–21 (May 2003)

Making Sense of Entity Rationalization
      Larry E. Ribstein, 58(3): 1023–1042 (May 2003)

Entity Rationalization: A Judge's Perspective
      Jack B. Jacobs, Vice Chancellor, Delaware Court of Chancery , 58(3): 1043–1050 (May 2003)

Plumbing and Other Transitional Issues
      Robert R. Keatinge, 58(3): 1051–1062 (May 2003)

1063 Rationalizing Limited Liability and Veil Piercing
      J. William Callison, 58(3): 1063–1072 (May 2003)

Business Lawyers as Enterprise Architects
      George W. Dent, Jr., 64(2): 279-328 (February 2009)
What do business lawyers do? To that seemingly simple question there has been no good answer. For twenty-five years the most widely accepted explanation was that offered by Professor Ronald Gilson in his article Value Creation by Business Lawyers: Legal Skills and Asset Pricing in the Yale Law Journal. Examining the work of lawyers in large mergers and acquisitions, Professor Gilson concluded that business lawyers are transaction cost engineers. On that basis, he proposed sweeping changes for the training of business lawyers in law schools.

However, mergers and acquisitions are but one of many tasks handled by business lawyers, and their role in other contexts is quite different. Moreover, the work of business lawyers has changed considerably since 1984. This Article offers a broader and more current analysis of what business lawyers do and concludes that they are more accurately characterized as enterprise architects. The Article then discusses what skills business lawyers need and how law schools can best prepare them for this work.

Financial Innovation and Governance Mechanisms: The Evolution of Decoupling and Transparency
     Henry T. C. Hu; 70(2): 347-406 (Spring 2015)
Financial innovation has fundamental implications for the key substantive and information-based mechanisms of corporate governance. “Decoupling” undermines classic understandings of the allocation of voting rights among shareholders (via, e.g., “empty voting”), the control rights of debtholders (via, e.g., “empty crediting” and “hidden interests”/ “hidden non-interests”), and of takeover practices (via, e.g., “morphable ownership” to avoid section 13(d) disclosure and to avoid triggering certain poison pills). Stock-based compensation, the monitoring of managerial performance, the market for corporate control, and other governance mechanisms dependent on a robust informational predicate and market efficiency are undermined by the transparency challenges posed by financial innovation. The basic approach to information that the SEC has always used—the “descriptive mode,” which relies on “intermediary depictions” of objective reality—is manifestly insufficient to capture highly complex objective realities, such as the realities of major banks heavily involved with derivatives. Ironically, the primary governmental response to such transparency challenges—a new system for public disclosure that became effective in 2013, the first since the establishment of the SEC—also creates difficulties. This new parallel public disclosure system, developed by bank regulators and applicable to major financial institutions, is not directed primarily at the familiar transparency ends of investor protection and market efficiency.

As starting points, this Article offers brief overviews of: (1) the analytical framework developed in 2006−2008 for “decoupling” and its calls for reform; and (2) the analytical framework developed in 2012−2014 reconceptualizing “information” in terms of three “modes” and addressing the two parallel disclosure universes.

As to decoupling, the Article proceeds to analyze some key post- 2008 developments (including the status of efforts at reform) and the road ahead. A detailed analysis is offered as to the landmark December 2012 TELUS opinion in the Supreme Court of British Columbia, involving perhaps the most complicated public example of decoupling to date. The Article discusses recent actions on the part of the Delaware judiciary and legislature, the European Union, and bankruptcy courts—and the pressing need for more action by the SEC. At the time the debt decoupling research was introduced, available evidence as to the phenomenon’s significance was limited. This Article helps address that gap.

As to information, the Article begins by outlining the calls for reform associated with the 2012−2014 analytical framework. With revolutionary advances in computer- and web-related technologies, regulators need no longer rely almost exclusively on the descriptive mode rooted in intermediary depictions. Regulators must also begin to systematically deploy the “transfer mode” rooted in “pure information” and the “hybrid mode” rooted in “moderately pure information.” The Article then shows some of the key ways that the new analytical framework can contribute to the SEC’s comprehensive and long-needed new initiative to address “disclosure effectiveness,” including in “depiction-difficult” contexts completely unrelated to financial innovation (e.g., pension disclosures and high technology companies). The Article concludes with a concise version of the analytical framework’s thesis that the new morphology of public information—consisting of two parallel regulatory universes with divergent ends and means—is unsustainable in the long run and involve certain matters that need statutory resolution. However, certain steps involving coordination among the SEC, the Federal Reserve, and others can be taken in the interim.

LLC Default Rules Are Hazardous to Member Liquidity
     Donald J. Weidner, 76(1): 151-182 (Winter 2020-2021)
Simply by forming LLCs, entrepreneurs now unwittingly lock themselves in to perpetual entities that offer them no liquidity and present them with costly procedural obstacles to enforcing both their agreement among themselves and their statutory rights. Even in atwill LLCs that are member-managed, recent LLC acts deny members both a right to dissolve and a right to be bought out. While thus locking members in, these acts deny them standing to bring many if not most of their claims among themselves or against the firm.